Investors were eager to close the books on April’s tariff-fueled market tantrum, which left both the Dow and S&P 500 riding three-month losing streaks despite a recent rebound. Equity ETF flows cooled, while fixed income ETFs put on a decisively skittish performance. Since the low nearly one month ago, money continued to flow heavily in favor of the short end of the yield curve and other shorter-duration fixed income products. Roughly $19 billion poured into Treasury bill and short-duration bond ETFs. On the flip side, long-duration bond ETFs suffered more than $5 billion in net outflows, while high-yield and investment-grade bond ETFs saw north of $9 billion in outflows.
Confidence in Credit Crumbles
Ongoing trade war tensions and economic uncertainty spurred a $5.4 billion exodus from bank loan and CLO ETFs – marking the category’s worst month on record. Investment-grade corporate bond ETFs bled $4.6 billion – also a historically lackluster showing. Corporate bond ETFs overall suffered more than $10 billion in net outflows. Meanwhile, high-yield ETFs capped off its fifth-worst month of net outflows – to the tune of $4.7 billion. All of this marked a notable reversal of fortune, as many of these categories were leading the flow charts in the runup to April. Investors had been visibly bullish on credit-sensitive instruments to start the year.
The $20 billion Janus Henderson AAA CLO ETF (JAAA ), which previously helped usher in a wave of inflows into the ultra-short ETF space, shed $1.3 billion in April. But according to a report from Bank of America, on a relative basis, loan ETFs have lost a much larger share of their total assets than CLO ETFs have this year. Since the end of February 2025, loan ETFs have lost 31% of their February 2025 AUM, while CLO ETFs have lost just about 8%.
Hedging Growth Fears with Duration
Long rates have gone nowhere all year, and the yield curve continues to steepen by the day – with the spread between the 2-year Treasury bill and 30-year Treasury bond yields continuing to widen. Much of the steepening stems from a stickier inflation outlook, but part of it is due to foreign investment paring back in dollar assets. All of this spells a major headwind for both U.S. mortgages and long duration government bonds.
The Vanguard Mortgage-Backed Securities ETF (VMBS ) fared worst in April – with nearly $5 billion in net outflows – followed by the iShares 20+ Year Treasury Bond ETF (TLT ), which came off a string of record inflows last year. Mortgage-backed securities are also suffering from an expected slowdown in refinancing, which will effectively end up lengthening their duration.
Safety in Short-Term Bonds
Meantime, market jitters spurred on a flood of inflows into short-term government bond ETFs and short-to-intermediate-term Treasury funds – as markets price in roughly three rate cuts this year. The SPDR Bloomberg 1-3 Month T-Bill ETF (BIL ) topped the flow charts – taking in $5 billion in net inflows. The Vanguard Short-Term Bond ETF (BSV ), iShares Short Treasury Bond ETF (SHV ) and the +iShares 0-3 Month Treasury Bond ETF+ (SGOV ) similarly were among the month’s biggest gainers.
Muni ETFs: Recent Reversal
Even safer, more predictable municipal bond ETFs have been on a roller-coaster ride. Fund flows turned positive after seven weeks of outflows, with muni ETFs managing to amass $2.8 billion for the month. But a combination of rich valuations, higher issuance and rising recessionary fears sparked a sell-off earlier this year – exacerbated by stubbornly high rates in the long end of the market. That’s pushed the muni bond market down to dirt cheap levels – near the cheapest levels in the last 15 years.
Signs of Life Starting to Emerge
April’s turbulent markets underscored a clear flight to safety, with investors favoring short-duration bonds and Treasuries amid persistent trade tensions and economic uncertainty. Sharp outflows from credit-sensitive ETFs reflected eroding confidence in risk assets, with a steepening yield curve further complicating the picture. As the Fed’s rate-cut trajectory remains in focus, fixed income investors appear poised to tread carefully, balancing defensive positioning with opportunistic dips into oversold segments.
Cheaper valuations have attracted tentative inflows into munis and CLOs in recent days, as selective bargain-hunting may be emerging. Over the past week, inflows into loan ETFs, corporates and even high yield have edged higher after a rough ride last month, as value seekers appear to gradually be coming back to riskier parts of the credit quality spectrum. Recent strength in the jobs market and stronger tech earnings may also be bolstering sentiment once more.
For deeper insights, join VettaFi’s Income Investment Strategy Symposium this Thursday at 11 am ET, where experts will unpack these trends and the road ahead.
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